EUR/USD Daily Forecast – Euro Gains as Risk Appetite Taints Dollar Demand

The dollar has had a relatively strong relationship with the equity markets as of late. The sharp decline in the stock market in March led investors to move to cash positions which led to a rally in the dollar index (DXY) to highs not seen in three years last month.

The high in the dollar index in March lines up well with the low in the S&P 500 which suggests that investors are no longer stockpiling dollars as they return to the equity markets.

In a show of optimism, the S&P 500 made an important break above its 200-week moving average on Monday. The same indicator had held the index lower twice last week.

Currency traders should keep a close eye on equities as the trend in that market stands to continue driving the dollar, at least over the near-term.

In terms of economic data, the week ahead doesn’t have a lot of scheduled data releases. The few items that are on the calendar aren’t likely to move the markets as they reflect a period ahead of the virus escalation.

A figure to keep an eye out this week is the US jobless claims figures. This report has shown a rapid increase over the last few weeks which gives a sense that the negative impact the virus is having on the economy is just starting to begin.

Technical Analysis

The move higher in EUR/USD has some momentum behind it. Further, the dollar is weakening broadly against the major currencies. Both of these points suggest that the currency pair has further room to the upside.

Perhaps a critical component to the EUR/USD recovery is the S&P 500’s ability to sustain above its 200-week moving average. Some traders may have been looking for a triple top near 2650 resistance and it’s too early to determine if the current leg up isn’t merely liquidating weak hands.

Near-term resistance for EUR/USD falls at 1.0926 while dips towards 1.0800 are expected to hold buyers.

Bottom Line

• The dollar is declining broadly on the back of increased risk appetite which is underpinning the EUR/USD exchange rate.
• The economic calendar is light and the pair is likely to continue moving on headlines and correlations.